Inflation went up. Vacancies went down. Payrolls weakened. Somewhere in Threadneedle Street, Huw Pill is probably allowing himself half a smile.

The inflation headlines looked ugly this week. The detail underneath them was rather less dramatic. Strip out the energy shock and the picture is softer: core inflation barely moved, services eased and the labour market continues to cool. That is awkward for the Bank of England. The headline number makes a rate cut harder to sell; the underlying data make another rise harder to justify. Pill, who was already one of three MPC members voting for higher rates in July, may feel vindicated. The rest of the Committee has a rather less comfortable puzzle (see Cost of Living).

The public finances offered another masterclass in choosing your comparator carefully. Borrowing is above the OBR forecast. So is the current-budget deficit. Both are also better than a year ago. Ministers can therefore say the inheritance is worse than expected. Their opponents can say the numbers are improving. Both can wave an official statistic at you while carefully avoiding the other one. Welcome to fiscal politics (see The Big Story).

None of this amounts to recession. Not yet. What Britain has instead is a fairly unpleasant policy collision: headline inflation rising while the pressure underneath it softens; borrowing improving but missing plan; gilt yields still near multi-year highs; vacancies falling; and public-sector pay pulling further away from what private employers can afford.

That last one deserves more attention than it gets. The state is bidding up wages with taxpayers’ money while the private sector, which ultimately has to fund it, is slowing down. There are only so many times you can run that trick before somebody notices.

John Healey now has ten weeks until his first Budget on 28 October. He does not need another argument about whether this year looks better than last year or worse than the OBR expected. He needs to decide which of these problems government can actually fix — and, rather more importantly, which ones it is making worse.

One last thing. GBTT passed 12,500 followers on X this week. Thank you to everyone who reads, shares, argues back and occasionally tells us we have got something completely wrong. You are already way ahead of the MSM in understanding whats going on. Congratulations!

The Grown-Ups Are Arriving

GBTT will announce the first cohort joining our new Academic Advisory Council this week — bringing together leading academics, economists, historians, business figures and commentators who share one fairly unfashionable belief: ideas should survive contact with evidence. The Council will challenge our work, sharpen our thinking and help make sure GBTT never becomes the sort of think tank that spends more time agreeing with itself than with reality. First names will be announced in the coming days.

Debt Nears £3 Trillion — And Borrowing Is Still Running Above Forecast

July's public finances missed the OBR's forecast on both the headline and current-budget measures. The counterweight is real too: borrowing is £6bn lower than a year ago, and debt is falling as a share of GDP.

Public sector net borrowing was £1.8bn in July, £0.7bn more than the same month last year and £2.3bn above the OBR's own forecast, the ONS confirmed on Friday. The financial year to July, at £56.7bn, is also £2.3bn above the OBR's forecast, though £6.0bn (9.6%) lower than the same period last year. Net debt, at £2,984.9bn, is 94.1% of GDP — a share not seen since the early 1960s, though 0.8 points lower than a year ago, as growth and inflation have expanded the economy faster than debt has grown.

The current budget — day-to-day spending measured against day-to-day revenue, excluding capital investment — was also worse than planned: a deficit of £37.5bn for the financial year to July, £0.2bn above the OBR's forecast. There is no good line hiding in this release; both the broad and narrow measures missed the OBR's own numbers. Allies of Rachel Reeves have reportedly told the Financial Times that her successor, John Healey, should not "blow" a supposedly strong inheritance on further tax rises — citing the same £22bn figure Reeves once used for what she inherited, attached to no fresh calculation of their own.

Scepticism is warranted here too. A debt pile closing on £3tn and borrowing above forecast on both measures are not evidence of room to spend more.

The Pay Gap Keeps Reopening — This Is The Second Time In A Year

Public sector pay has outrun private sector pay for most of the past four years, and after narrowing to 1.7 points this spring, the gap has widened again to 3.3 points — the second time in under a year it has reopened this sharply.

Vacancies At An 11-Year Low.

The ONS's labour market release, published Tuesday, covers April to June for its core survey measures. Unemployment rose to 4.9%, up 0.2 percentage points on the year, though down 0.1 points on the previous quarter. Job vacancies fell to 707,000 in the three months to July — outside the pandemic, the lowest reading since September to November 2014. A flash, provisional estimate for July payrolls shows a fall of 94,000 on the year, likely to be revised.

Regular pay grew 3.5% overall, but that headline hides a much sharper divide. Public-sector pay rose 6.1% in the year to June; private-sector pay managed just 2.8%. That is more than double, and the widest gap of the past year. The ONS is right to note that some of this reflects the timing of public-sector pay awards. Fair enough. But timing does not pay the wage bill. Right now, the state is handing its own workforce rises more than twice as large as those most private employers can afford, while those same employers are cutting vacancies and shedding staff. And, of course, somebody has to pay for it. This week’s borrowing figures came in above forecast (see The Big Story). A loosening labour market and rising real pay can coexist for a while. But not indefinitely.

Inflation Jumps To 2.9% — But Core Pressure Barely Moves

CPI inflation rose to 2.9% in July, from 2.6% in June. The culprit was not exactly difficult to find. Ofgem lifted the household energy price cap by 13% on 1 July, sending gas prices up 14.7% in a single month — the biggest monthly jump since October 2022. Underneath that, the picture was much calmer. Core inflation held at 2.6%, while services inflation — the measure the Bank watches most closely for home-grown price pressure — eased from 3.6% to 3.4%. So yes, the headline went the wrong way. But the bit the Bank should care about most actually improved.

Sales Dip In July, But The Underlying Trend Still Points Up

Retail sales volumes fell 0.5% in July, unwinding most of June’s revised 0.7% rise. One month, though, is mostly noise. The underlying picture is rather better: volumes in the three months to July were up 1.1% on the previous three months and 1.6% higher than a year earlier — the second-strongest annual reading since April 2022. So the consumer has not fallen over. Not yet. The more interesting question is what happens next. With energy bills pushing CPI higher again this month (see Cost of Living), autumn will test whether that resilience can survive another squeeze on household budgets. The July dip tells us very little on its own. The next few months will tell us rather more.

House Prices Rise 2.0%, With London Still Falling

The ONS/Land Registry House Price Index for June, published this week, put annual UK house-price inflation at 2.0%, with the average property now costing £272,000. London remains the outlier: prices there fell 2.5% on the year, to an average of £554,000 — still by far the most expensive region, but moving in the opposite direction to the rest of the country. We expect further falls in London property prices, especially in the prime central London sector.

Gilts Push Higher, Oil Holds Near $94 On Hormuz Risk

The 30-year gilt yield ended the week at 5.81%, close to its highs for the year, while the 10-year remained above 5% at 5.065%. These are rapidly becoming the numbers that matter in Westminster. The Financial Times reported this week that investors are already pressing John Healey over the scale of government borrowing ahead of his 28 October Budget. And they have rather more leverage than most lobbyists.

GBTT's Damian Pudner says, "It's only a matter of time before the 30y gilt breaches 6 per cent, and that should focus ministers minds."

Universal Credit Hits A Record 8.4 Million. Fewer Of Them Are In Work

DWP figures published this week show 8.4 million people on Universal Credit in May, the highest since the benefit began, up from 7.7 million a year earlier — though DWP attributes 73.2% of that annual increase to the ongoing migration of claimants from legacy benefits such as ESA, not new claims. In April, the latest month broken down by employment status, the share of claimants in any employment was 37.7%, down from 41.9% a year earlier — a fall that partly reflects who is being migrated onto UC rather than people losing jobs outright. Of the 6.7 million households receiving a payment, 44% include children. The figures land the same week Damian Pudner, writing for gbtt.info, set out where he agrees and disagrees with Reform's £50bn welfare-savings claim (see Further Reading, below).

From gbtt.info This Week

Next Week's Trouble

Parliament remains in recess until Tuesday 1 September.